In a unified trading account, your margin level is the critical metric that determines if and when a position gets liquidated. A common misconception is that liquidation only happens when this level hits zero. In reality, once your margin level drops below 100%, your position may be partially or fully closed. This process helps protect the broader market and your account from extreme losses.
When liquidation occurs, the platform collects a clearance fee, which is then added to the exchange’s insurance fund. Depending on your position size and the tier you’re in, the system may opt for partial liquidation instead of closing your entire position at once. If the margin level remains under 100% after a partial reduction, the system continues closing portions until the requirement is met or the position is fully eliminated.
This tiered approach is a key risk management feature designed to minimize market impact, especially during volatile conditions or when large positions are involved.
How Liquidation Works Step by Step
Liquidation is not a single event but often a process. It begins when your account’s margin level—calculated as equity divided by used margin—falls below the 100% threshold. This signals that your available collateral is no longer sufficient to cover potential losses.
The system then initiates liquidation, which may start with reducing only part of your position. If the margin level remains insufficient, the process continues iteratively. This mechanism helps avoid the sudden, large market orders that can occur during full liquidations, thereby reducing slippage and protecting both the trader and the market.
You can estimate your liquidation price using the built-in calculator on the derivatives trading page. However, if you hold multiple positions in a unified account, note that the actual liquidation price might differ from the estimated one due to shared margin and cross-position risk.
Calculating Your Margin Level
Your margin level is a percentage that represents the health of your account. It is calculated as:
Margin Level = (Equity / Used Margin) × 100%Equity includes your balance plus any unrealized profit and loss from open positions. Used margin is the amount locked as collateral for those positions.
Different account modes calculate equity and margin differently, which affects your margin level and liquidation price. It’s essential to understand the specifics of your chosen mode to manage risk effectively.
👉 Estimate your personalized liquidation threshold
Account Modes and Their Impact
Single-currency and Cross Margin Mode
In this mode, your margin is held in a single currency, and all positions share the same collateral pool. This can increase leverage but also amplifies risk if the market moves against you.
Multi-currency and Cross Margin Mode
Here, margin can be held in multiple currencies, which are converted to a base currency for calculation. This allows for more flexibility but adds complexity to how equity and margin are computed.
Isolated Margin Mode
In isolated margin, the margin for each position is separated. This limits your risk to the allocated collateral for that trade alone, preventing a single bad trade from affecting your entire account.
Each mode requires a different approach to risk management. Understanding these can help you choose the right strategy for your trading style.
Using the Liquidation Calculator
Most trading platforms offer a liquidation price calculator within their trading interface. This tool estimates the price at which your margin level would drop to 100%, triggering liquidation.
To use it, input details like your entry price, leverage, and margin amount. Remember that this is an estimate. In a unified account with multiple positions, the actual liquidation may occur at a different price due to correlations between assets and shared margin.
Regularly checking this calculator can help you set stop-loss orders or add margin proactively to avoid liquidation.
Frequently Asked Questions
What exactly triggers liquidation?
Liquidation is triggered when your margin level falls below 100%. This means your equity is less than the margin you’ve used, indicating insufficient funds to maintain your open positions.
Is liquidation the same in all account types?
The liquidation threshold (100% margin level) is consistent, but the calculation of equity and used margin varies by account mode. Isolated margin accounts limit risk to per-position collateral, while unified modes share risk across positions.
Can I prevent liquidation?
Yes, by monitoring your margin level, using stop-loss orders, or adding more funds to your margin balance. Regularly checking your positions and market conditions is key to proactive risk management.
What happens during partial liquidation?
The system closes a portion of your position to bring your margin level back above 100%. If it remains below, the process repeats until the requirement is met or the position is fully closed.
Are there fees for liquidation?
Yes, a liquidation clearance fee is charged and contributed to the platform’s insurance fund. This fee compensates for the cost of closing the position under market conditions.
Why did my position liquidate at a different price than the calculator showed?
In unified accounts with multiple positions, the actual liquidation price can differ due to correlated losses between assets or changes in shared margin availability. The calculator provides an estimate based on isolated conditions.
Proactive Risk Management Strategies
Understanding liquidation mechanics is the first step toward avoiding it. Use leverage cautiously, especially in volatile markets. Diversify your positions to avoid overexposure to a single asset.
Monitor your margin level regularly and set alerts if your platform offers them. Consider using lower leverage to give your positions more room to withstand market fluctuations.
Finally, always ensure you have a risk management plan. Know your exit strategies, use stop-loss orders, and never invest more than you can afford to lose. 👉 Explore more strategies for risk management
Remember, trading derivatives involves significant risk. The content provided is for informational purposes only and is not financial advice. Always assess your financial situation and consult with a professional before making investment decisions.